How New ISO Principles, Launched At COP29, Are Reinvigorating ESG Efforts

• Launched at COP 29, the ISO ESG Implementation Principles seek to both enhance understanding of ESG as well as offer guidance that will enable more consistent reporting.
• They are as applicable to a small organization as they are to a large one and are designed to support organizations at any stage of their ESG journey.

20 November 2024

By ISO President Dr Sung Hwan Cho

Imagine a situation where it’s possible to both improve the existing version of capitalism and take tangible steps to mitigate climate change. This is what ESG – environmental, social, and governance – investing strives for. Its central concept is that investors, governments, and consumers should have a means by which they can readily evaluate an organization based not solely on its financial performance but also wider factors, such as its environmental record or the manner in which it treats its workforce as well as those involved in its supply chains. It is a far more holistic, sustainable way of operating and investing and one that aims to make firms accountable for their negative externalities.

But interested parties are faced with multiple definitions of ESG, unsubstantiated claims, and difficult trade-offs. Organizations, meanwhile, face a similarly difficult, albeit different set of challenges, as they navigate the ESG landscape. These include charting compliance and disclosure requirements, creating workable measurements, and finding the best means to report and communicate their activities.

Answering these challenges is a new set of principles from the International Organization for Standardization (ISO), launched at the 2024 UN Climate Change Conference (UNFCCC COP 29). The ISO ESG Implementation Principles seek to both enhance understanding of ESG as well as offer guidance that will enable more consistent reporting. They are as applicable to a small organization as they are to a large one and are designed to support organizations at any stage of their ESG journey.

ESG has become so embedded in our lexicon that it’s worth remembering that the term only appeared 20 years ago. A lot has happened in the intervening years and perhaps its most obvious progress is in making the ideas of E, S, and G commonplace. While for the first decade or so, ESG was a “nice to have” rather than being anything mandated or regulated, in the past ten years, it has become essential to future business success, with regulation and disclosure requirements escalating. To put this into context, it is estimated that reporting requirements have risen 155% in the past decade, albeit from a low base.

Hearteningly, it’s now accepted practice to argue that firms should be accountable for their negative externalities. But ESG activities and reporting face a raft of challenges. A fundamental issue is what to include. There is no standardized definition of ESG and what it encompasses. It can, and often does, include factors like carbon footprinting and waste management (E), diversity and human rights (S), and regulatory compliance (G), but all of these can and do change by continent and even country.

This gives rise to some basic, but significant questions. How do you evaluate something as broad as an organization’s ESG activities? Is it possible to measure whether an organization is improving in these areas, particularly when some of the activities have less than tangible outcomes? And how does an investor know if an organization operating in Brazil is measuring the same ESG activities – and in the same manner – as another based in Australia?

The publication of the ISO ESG Implementation Principles comes following enhanced scrutiny over ESG performance, and at a time when interest from investors in ESG considerations has been shown to be falling. Inconsistent and widely varying ESG disclosures – by jurisdiction and sector – have depressed interest at exactly a time when it should be rising.

This is where ISO’s new principles come into their own. Like ISO International Standards, the ESG Implementation Principles are universal. Almost 2,000 experts from standards organizations worldwide have collaborated to produce them, defining terms, considering each element of E, S, and G, and working out a standardized structure that will help organizations put theory into practice.

They offer organizations all the information they require, from integrating ESG principles into the organization’s culture, to establishing measurable key performance indicators (KPIs), enabling a more effective system for performance and reporting and assessing their maturity in ESG practices.

These principles could not be released at a more opportune moment. UN Climate Change Conferences map out our collective climate action and COP 29 is no different. As we seek a unified response to the escalating risks from a changing climate, it has never been timelier to standardize how we define, implement, and measure our ESG activities.

As ISO International Standards show, universally accepted methods and measures for action have a profound effect. In using tried and tested methods to address key aspects of climate action, I am proud to say that ISO’s work is literally making a difference. Taking action to counter climate change requires ever greater urgency, and as global temperatures threaten to reach the 1.5°C threshold, we need straightforward, tangible ways to mitigate global warming and tackle its effects.

The ISO ESG Implementation Principles are providing guidelines for a defining moment. Given the choice, increasing numbers of people want to invest in a manner that reflects their concerns about global warming and social justice, and, similarly, growing numbers of organizations want and need to implement ESG principles. Progress in this area will encourage a balanced, sustainable growth strategy, which ultimately accelerates progress towards a more just and sustainable world, without sacrificing sound, sustainable development and the prosperity of our economy.

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